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Thursday, 13 January 2011

China's Demographic Disadvantage

Since the financial crisis of 2008, an extraordinary amount has been written on the decline of American power and the rise of China, with some scholars going so far as to suggest that Beijing will replace Washington as the world’s 21st century superpower. These writers point to China’s incredible rates of growth over the past three decades, which have seen the nation’s GDP grow by almost ten percent per year, and their projected future growth rates, which, according to Goldman Sachs, will see China overtake the US in terms of GDP by 2027.i These scholars also refer to the substantial problems within the American economy, with low growth rates predicted for years to come, and a federal debt that could equal total GDP as soon as 2015.ii If victory in the Cold War was achieved by maintaining a significant economic advantage, then perhaps we should be readying ourselves for an international system dominated by Beijing. However, what these forecasters often underestimate is the important role that demographics may play in the economic outlook of both nations; and in this regard America has a distinct advantage.

Though inconceivable only a few decades ago, the People’s Republic is lacking people. Or at least it will be in the future. As a consequence of the one child policy introduced in 1978, China has had sub-replacement level fertility for the past twenty years, with a current average of just 1.5 children per women. This will result in a considerable decline in its quantity of young workers, who tend to have more energy, be better educated, and have a superior understanding of new technologies. Over the next 20 years, this group (defined as 15-29 year olds) is set to fall by approximately 100 million, or around 30 percent. This will be coupled by a huge expansion in its numbers of older citizens, who were born in the period before population controls. In 2010, there were approximately 115 million people of 65 years of age or older. But by 2030, this number is set to more than double, to 240 million people. In a country that has no national pension or health care systems, providing for this deluge of senior citizens provides a troubling conundrum.iii

Furthermore, thanks again to the one child policy, China now has a ratio of six men to every five women. This has already created a substantial number of disenchanted men in their twenties and early thirties who cannot find potential suitors, and this problem appears destined to worsen over the next few years. When one considers that many of these young men will have the added burden of providing for their parents and grandparents during old age, it is conceivable to imagine considerable social and economic problems arising over the next few decades.

In contrast to China, the United States’ demographic outlook for the future appears fairly healthy. According to 2008 US Census Bureau projections, the population is set to increase by 20 percent (310 to 374 million) between 2010 and 2030, during which time almost every age group within the nation will increase in size.iv Unsurprisingly, America’s increasing population is largely a result of a willingness to produce more children. Unlike the drastically declining birth-rates witnessed in China, and indeed in almost the entirety of Europe, American fertility has remained at around replacement level over the past few decades, with the South, Southwest, and West showing the greatest enthusiasm for reproduction. If fertility remains at its current rate, as the US Census Bureau expects it to, then America will benefit from a 35 million surplus of births to deaths over the next two decades.

Moreover, as the recently released US Census shows, America’s strong demographic situation is also a product of immigration, which accounted for 40 percent of the increase in population over the past ten years.v Indeed, since its founding, the United States has demonstrated an impressive ability to harness the creative capacity of millions of foreign-born workers to the benefit of the American economy. However, recent evidence suggests that the American people are becoming increasingly reluctant to endorse high levels of immigration. In 2008, 39 percent of the population favoured decreasing immigration, while by 2009, this figure had risen to 50 percent.vi Though it is not surprising to see citizens attempting to reduce potential competition for jobs during a time of economic hardship, this worrying trend against immigration could increase in reaction to a substantial terrorist threat, or if the financial troubles persist. Were this to happen, the US would likely follow Europe and the Far East down the path to demographic decline. But, if America avoids this trap, it could be the only developed country in the world to witness a growth in its working age population over the next thirty years.

Of course, the US will not avoid many of the problems related to providing for the baby-boom generation, the first wave of which having already reached retirement age. But with a social security system already far superior to anything China can produce in the medium-term, a replacement-level birth-rate that Beijing cannot match, and a far healthier ratio of males to females, Washington is undoubtedly better prepared for many of the population challenges of the 21st century. For China to surpass America as the world’s preeminent superpower, it will have to overcome its significant demographic disadvantage.